MRF, a tire firm, recently saw its share price surpass the Rs 1 lakh mark, leading many market participants to feel a fear of missing out (FOMO). However, analysts argue that this six-digit price tag does not necessarily make it the most expensive stock. When considering MRF's market capitalization of Rs 42,000 crore, it does not even rank among the top 100 listed companies in India.
Unlike many blue-chip stocks, MRF has never undergone a stock split or bonus issue. For the fiscal year ending March 2023, MRF declared an equity dividend of 1,500% or Rs 150 per share based on a face value of Rs 10. With the current share price of Rs 1 lakh, this translates to a dividend yield of 0.15%.
In terms of market capitalization, MRF falls behind prominent companies like Reliance, with an m-cap of Rs 16.8 lakh crore, followed by TCS at Rs 11.8 lakh crore, and HDFC Bank at nearly Rs 9 lakh crore. These figures highlight the vast difference in the size and value of these companies compared to MRF.
Sonam Srivastava, the founder of Wright Research, an investment advisory firm, emphasized the importance of researching and evaluating a company's underlying value and future prospects before investing. He cautioned against being swayed solely by a stock's share price, as there are multiple factors to consider.
The price of a stock alone does not indicate whether it is cheap or expensive. The value of a stock depends on various factors such as market capitalization, price-to-earnings (P/E) ratio, earnings, and growth prospects. Market capitalization represents a company's total value by multiplying its stock price by the number of outstanding shares. The P/E ratio compares a company's share price to its per-share earnings, providing insights into its expected growth.
Srivastava stressed that a high-priced stock may be justified if it has strong earnings and future growth potential. Conversely, penny stocks, despite their low price, can be considered "expensive" due to their high risk. Such stocks are often less established, susceptible to price manipulation, and have wide bid-ask spreads, making them costly to trade. Therefore, it is crucial to thoroughly research and evaluate a company's underlying value and future prospects before making investment decisions.
Gaurav Bissa, VP at InCred Equities, believes that there is more potential for growth in the MRF stock. He points out that MRF has shown strong upward momentum, outperforming the broader market indices. Technical analysis indicates bullish patterns on both weekly and point and figure charts, suggesting the stock may rise further.
It is worth noting that there are at least 15 other stocks trading above Rs 10,000 in the domestic equity market, including companies like Honeywell Automation India, Page Industries, 3M India, Shree Cement, Nestle India, and Abbott India. These stocks demonstrate that high-priced stocks can be found across various sectors, and investors should consider multiple factors beyond just the share price when assessing their investment potential.